US Postal Service 2013 Annual Report Download - page 7

2013 Report on Form 10-K United States Postal Service 5
Market-Dominant services. Prices for Market-Dominant services were increased 1.7% in April 2011, and an average of
2.1% in January 2012. The price of a one-ounce First-Class Mail stamp was $0.45 after increasing from $0.44 in January
2012. New pricing for all Market-Dominant services went into effect on January 27, 2013, at an average increase of 2.6%,
after the compliance review of the PRC. The price of a one-ounce First-Class Mail stamp increased to $0.46 at that time.
Prices for Competitive services, by law, must cover costs attributable to each product, as well as an appropriate share of
the institutional costs of the Postal Service. The required share of institutional costs to be covered by Competitive market
services was determined by the PRC to be 5.5% of total institutional costs. By law, changes in prices for our Competitive
market services must be announced at least 30 days prior to the implementation date. Prices for these Competitive
market services–including Priority Mail Express, Global Express Guaranteed, Express Mail International, Priority Mail,
Priority Mail International, Parcel Select, and Parcel Return Service–increased an average of 3.6% in January 2011, and
again in January 2012 at an average rate of 4.6%.
On September 25, 2013, the Postal Service proposed two separate price increases for Market Dominant (Mailing
Services) products, an average 1.6% increase based on changes in the Consumer Price Index (CPI) and a 4.3% average
increase, on top of the 1.6% increase due to extraordinary and exceptional circumstances that have resulted in
unacceptably low levels of liquidity. The 4.3% “exigent” price increase was deemed necessary by the Board of Governors
to enable the Postal Service to maintain and continue the development of postal services of the kind and quality adapted
to the needs of the United States, in view of the uncertain path towards postal reform legislation. The proposed pricing
changes would increase the price of a First-Class Mail single-piece letter from $0.46 to $0.49. Similar increases would be
applied to Standard Mail, Package Services, Periodicals, and Extra Services. The proposed changes, which, if approved
by the PRC, would go into effect in January 2014, are expected to generate $2 billion of additional annualized revenue for
the Postal Service.
We offer contract prices, rebates, online price reductions, and other incentives to encourage customers to increase their
volumes, which in turn, will increase Postal revenue.
Reclassification of Certain Postal Services
Periodic reclassifications and expansions of services from Market-Dominant to Competitive, which require approval from
the PRC, are necessary to rationalize service offerings. The additional flexibility provided in Competitive services allows
us to better offer services that meet customer needs, to increase business for the Postal Service, and to allow us to price
our products and services competitively within the markets in which we operate. The Postal Service’s Competitive
services generally include most of our shipping, package, and expedited delivery services.
In Quarter I, 2012, with the approval of the PRC, we reclassified certain lightweight commercial parcels previously
included in the Market-Dominant category as First-Class Mail Parcels. These parcels were classified as First-Class
Package Services and included in Competitive services. In addition, certain Post Office Box services were reclassified
from Market-Dominant to Competitive. In Quarter II, 2012, Standard Mail parcels used for the fulfillment of customer
orders were reclassified as part of Parcel Select which is a Competitive service. There were no new reclassifications in
Quarter III or IV, 2012. On July 20, 2012, the PRC conditionally approved the transfer of Standard Post (formerly Parcel
Post) from Market-Dominant to Competitive, effective January 27, 2013. On September 10, 2012, the PRC approved the
transfer of First-Class Package International Service from Market-Dominant to Competitive, also effective January 27,
2013.
While there are distinct legal and regulatory classifications of postal services known as either Market-Dominant or
Competitive, Postal Service management utilizes the following broad service categories to evaluate performance and
manage the business: First-Class Mail, Standard Mail, Shipping and Packages, International, Periodicals, and Other.
Throughout this document, operational measurements and financial data, such as revenue and volume, will be reported
utilizing these categories.
INTELLECTUAL PROPERTY
We own intellectual property that includes trademarks, service marks, patents, copyrights, trade secrets, and other
proprietary information, and routinely generate intellectual property in the course of developing and improving systems,
services, and operations. While legal protection for intellectual property and proprietary information is significant to our
success, the knowledge, ability, and experience of our employees and the timeliness and quality of service we provide are
more significant.